Q4 2020 Clipper Realty Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the except for of Realty of <unk> 2020 earnings call at.
At this time, all participants have been placed on a listen only mode and the <unk>.
There will be opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Michael friends sort of the floor is yours.
Good morning, and thank you for joining us for the fourth quarter 2020, Clipper Realty, Inc. Earnings Conference call participating with me on today's call are David <unk> Co Chairman of the board of Chief Executive Officer, and JJ Best for Sir Chief Operating Officer.
These be aware of that statements made during the call that are not historical maybe deemed forward looking statements and actual results may differ materially from those indicated by such forward looking statements.
These statements are subject to numerous risks and uncertainties, including those disclosed in the company's 2020 annual report on form 10-K posted yesterday, which.
Is accessible at Www Dot SEC dot Gov, and our website.
As a reminder, the forward looking statements speak only as of the date of this call March 17th 2021, and the company undertakes no duty to update them.
During this call.
Management may refer to certain non-GAAP.
The financial measures, including adjusted funds from operations for <unk> adjusted earnings before interest taxes, depreciation and amortization for adjusted EBITDA and net.
Net operating income or NOI.
Please see our press release supplemental financial information and form 10-K posted yesterday for a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures.
With that I will now turn the call over to our co chairman and CEO David <unk>.
Thank you Michael and good morning, and welcome to the fourth quarter 2020 earnings call for the Clipper Realty.
I'll provide an update to our business performance, including the recent highlights and milestones as well as all of our company continues to respond to the COVID-19 pandemic.
I'll turn the call over to J, J, who will discuss the property level of activity, including leasing performance and measures taken in light of the.
Finally, Michael will speak about our quarterly financial performance.
We will then take your questions I will begin by thanking the entire group of Realty team for the continued hard work and perseverance during these unprecedented times growth.
For the episode of the past year on the very challenging circumstances are proud of the ongoing dedication to our shareholders residents communities and our business.
<unk> have remained open and operational throughout the pandemic, we continue to take the necessary steps to make our tenant sales.
And in compliance with state and local orders.
During the fourth quarter and into the beginning of 2021, we have seen an increase in residential leasing activity as New York City on the economy in general continues the strengthened from the depths of the pandemic, we expect demand to accelerate pricing continued to improve as New York City continues to open up and vaccinations proliferate.
At year end of the properties were 95 at least per.
<unk> 200 basis points increase versus the end of the third quarter. We are confident in the resiliency of New York City, We expect our properties of the city to remain desirable for a broad range of incentives and operations continue to return to a more normal state over time.
Last month, we refinanced the one player one let me say the street property with the $100 million 10 year secured first mortgage loans with city of real estate lending Inc.
The loan bears interest of $3 two 1% interest only for the type of term, which is expected to reduce annual debt service by $1 $3 million moving.
We paid the existing $74 million amortizing loans on the property that was due in 2028 and board of interest at three 875 through May 2023, net proceeds of approximately $23 million.
The increased our cash position, we finance our portfolio on the asset by asset basis, no cost growth.
<unk> and our debt is nonrecourse and non cross collateralized, except for the standard carve outs, we have no debt maturities of any of our operating properties of two 2027 per.
<unk> is well positioned from a liquidity perspective during the fourth quarter.
We repurchased approximately one 7 million shares of common stock at an average price of $5.
70, <unk> per share on the $10 million repurchase program announced in August of 2020, we completed the purchase program in November of last year.
The recent development data for.
With the redevelopment of the 10 10 Pacific acquisition located in Prospect Heights, Brooklyn about one mile from the Atlantic Terminal Barclays.
As previously discussed we estimate the project will cost $85 million.
In total day two years, the complete and developed the six 5% stabilized cap rate JJ will provide a further update on the project shortly permits through <unk>.
We commenced construction are in hand.
Construction has commenced in our office portfolio the <unk>.
City rent the woefully will limit the property to increase 25% by the end of December 2020, how will add $2 $1 million of the property annual NOI together with the expected additional $5 million of annual NOI, resulting from these new leases of $2 50, Louis The Street property.
The commenced in August of 2020. These roles are expected to add an increase incremental $7 $1 million of annual NOI to our portfolio, representing an approximate 10% increase on a normalized run rate.
I would like to provide an update on Tribeca House for 'twenty, One day as the cruise missile litigation as previously disclosed on October 29, 2020 of the appellate division the applied the quarter of appears Regina ruling to this case holding the base day for the determination of the rent overcharges for years prior to <unk>.
2016 filing of the equivalent to the way that overcharges.
If any of us.
The determined by comparing the rents actually charged during the full year of grid to the rent increase of submitted by New York City rent guideline board, although net.
Eliminating rental which is the liabilities altogether. This ruling is expected to limit of <unk>.
Actual exposure in this regard the case will be remanded back to the lower court, which will determine the amount of the liability of Rancho overcharged. The attorney's fees No code data of the schedule yet we do not believe that this litigation will have a material impact on our business as a percentage to a limited subset of previously of previous and existing tenants of the drop of.
The vast majority of the current tenants and all future move ins are not impacted.
By the litigation as those units of free market Lastly, I'd like to comment on the fourth quarter results. We are reporting quarterly revenue of $33 million NOI of $14 7 million.
<unk> of $3 million.
Michael will provide further details on our financial performance I will now turn the call over to J J, who will provide an update on operations and our response to the pandemic.
Thank you.
By again, extending our gratitude to the company's employees for their tireless efforts throughout this unprecedented period.
We remain inspired by the ongoing commitment to our tenants and communities.
We continue to rigorously maintained protocols to keep our residents and employees safe in compliance with Covid related government mandated orders and to provide committed regular services to our tenants.
We have seen a marked increase in residential leasing activity beginning in the fourth quarter and continuing today at year end most of other properties were leased in the mid to high 90% range, a strong uptick from the approximate 90% level at the end of the third quarter this rental demand strength.
Solidified in 2021, as New York City continues to emerge from the challenges of the pandemic.
Occupancy at Tribeca House increased to 90% at year end from 80% at the end of the third quarter. We have seen further strengthening in the first few months of 2021.
We are working diligently to manage revenue at the property.
The longer term, we believe that occupancy and rental rates at Tribeca House will return to pre COVID-19 levels, given the asset quality and attractiveness from a pricing standpoint compared to the other luxury buildings in the surrounding neighborhood the.
<unk> guidance complex in Brooklyn held up well in the fourth quarter from a revenue standpoint.
As it has throughout the pandemic the property maintained high occupancy ending the quarter, 95% leased.
<unk> per square foot was a record $25 14 at the end of the quarter.
As noted previously we have reorganized certain operations at the property as part of the ongoing efforts to manage our expense base, which is expected to result in annual cost savings in excess of $800000.
The average loans as a key element of our portfolio and growth story with the FAA of expansion project and incremental value opportunity.
Rent collections have continued to remain strong during the pandemic our collection rate in the fourth quarter was over 95%.
We continue to work with tenants on a case by case basis, if they notify us that they cannot meet the rent obligations as a result of the pandemic, including reviewing potential alternative payment arrangements.
On the development side, we are completing the necessary regulatory processes at 10, 10% the street to construct the non story of 119000 rentable square foot fully monetize multifamily rental building with underground in the parking there.
Property is expected to have a 175 total units, 70% of which will be free market and 30% of affordable and is eligible for a 35 year for 'twenty one day tax abatement.
We are in the process of negotiating of construction loan for the project.
Looking ahead, we remain focused on optimizing occupancy pricing and expenses across the business. The best position ourselves as New York City continues to emerge from the pandemic I will now turn over the call to Michael who will discuss our financial results.
Thank you J J for.
For the fourth quarter, we achieved revenues of $33 million compared to $30 $6 million for the fourth quarter of 2019, we achieved NOI of $14 $7 million and <unk> of $3 million for <unk>.
Slight year over year revenue change was primarily attributable to a decline in leased occupancy in residential rental rate at the Tribeca House property, partially offset by the commencement of the new office lease at the 250 Livingston Street property during the third quarter of 2020.
On the expense side key year over year changes were as follows.
Property operating expenses increased by zero point $8 million in the fourth quarter year on year.
Primarily driven by an increase in the provision for bad debt due to the impact of COVID-19.
Real estate taxes, and insurance increased by zero point for millions in the fourth quarter year on year due to property tax increases across the portfolio and general insurance industry cost increases.
Interest expense increased by zero point of $2 million in the fourth quarter year on year, primarily due to the refinancing of the Flatbush gardens property in May 2020.
As David mentioned earlier, we are well positioned from the liquidity perspective.
Pro forma for the 141 Livingston Street refinancing last months, we of $107 million of cash consisting of $88 million of unrestricted cash of $19 million of restricted cash we finance our portfolio on an asset by asset basis. Our debt is not cross collateralized and is nonrecourse subject to standard.
Limited carve outs.
We have no debt maturities on any operating properties until 2027.
Today, we are announcing a dividend of dining of half cents per share.
For the fourth quarter, the same amount as last quarter. The dividend will be paid on March 31 to shareholders of record on March 26th.
Lastly, as previously disclosed our previously issued unaudited consolidated financial statements covering each of the first three quarters of 2020 require restatement.
Our previously reported <unk> adjusted EBITDA and NOI for each of the first three quarters of 2020 will not be impacted by the restatement our liquidity cash flows and cash position will also not be impacted by the restatement.
We will file and then the quarterly reports on form 10-Q for each of the first three quarters of 2020.
Let me now turn the call back over to David for concluding remarks.
Thank you Michael we have remained focused on efficiency operating our portfolio throughout the pandemic for the safety of our tenants of employees, our highest priority we continue to take necessary steps to navigate through the current challenges buttressed by a strong balance sheet, New York City has survived and thrived through challenging circumstances.
Throughout its history, and we expect the city's recovery from the pandemic to accelerate in 2021 and beyond we enthusiastically look forward the capitalizing on the myriad of growth opportunities.
We intend to emphasis of Sig.
The development and other developments that will present itself, we hope everyone stays safe and healthy with that I'd like to open up the line for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We asked about posing your question you. Please pick up your handset if listening on speaker from to provide optimum same quality. Once again is there any questions. Please press star one on your phone at this time.
And the first question is coming from Craig to Sarah Craig Your line of lives. These metrics lineation and pose your question.
Yeah. Thanks, Hi, this is Craig could share with B Riley securities Good morning.
Thanks for taking my questions.
I'd like to talk about the refinancing completed earlier this quarter.
You have now of about $95 million of cash you've still got your restricted cash on top of that can you give us a sense of what you plan on doing with the excess cash you have after this refinance and I know you had the excess cash from last year's refinances is flat Bush as well just some thoughts there would be helpful.
We don't have any specific plans at this moment of time, we continue to be on the lookout to opportunities as the.
The present themselves.
The company took advantage of these refinancing opportunities to <unk>.
And the maturity days the interest only basis.
That was the low interest environment prudent to do it at the time.
We are pretty confident of the overtime opportunities that meet our investment criteria, we will present itself.
Got it and now that you completed the 10 million share $10 million of share repurchase in the fourth quarter is the board revisiting another authorization.
That's been discussed here is as you know the the stock has gone up to $8 from $5.
The total purchase the shares.
We haven't had any discussions yet about the if we do and we make any decisions obviously, we will announce it.
Got it.
And can you give me some color on the refinance at 141 Livingston what was the LTV was that done on on trailing or forward looking NOI and any color there would be helpful.
Think of it was approximately about 60, 65% the LTV was the <unk> alone.
And was that done.
Yes, sorry.
Go ahead, David Yes, it was.
Okay great.
And I did.
Did the very good job of getting occupancy up very quickly from third quarter to fourth quarter of the number of your properties.
But at the time you had to.
Really reduce rents, particularly like it of Clover House and this is the two part question I guess, a is the $50 or so that the clubhouse is that now is that now market or did you kind of take some short term pain to get that back up to 99% occupancy.
What are your expectations to begin pushing rents now that you have occupancy much closer to kind of traditionally where you operated with the exception of out of the Tribeca.
Great question. The latter is true we obviously, we our strategy is as my father was the low strength of the smoke opportunity can navigate that day, so positioning and strategy has always been to try to maximize the occupancy is great for when the tie changes is it has to be able to increase rents slowly over the.
Time.
And we've kept the occupancy high.
We're going to start seeing I think the rents will slowly creep back to where the work before the spin down the hit us.
The.
The less amount of the product around the was a lot of the cessation of the construction going on and plans of the construction I think that'll help us.
The properties are well maintained well positioned.
The during the pandemic, we did lower the prices the capture of the Occupancies that we enjoyed but now we will turn towards the slowly starting to see those rents get back to where the wound.
Thank God I can let I can let JJ speak as well, but of particular as it relates to Clover House as David said, we took.
Took the opportunity to fill up the building into the fourth quarter there.
In the first couple of months of this year, we started to see a creep back up I think clubhouses in the mid fifties already on rent per square foot.
So again, we will we'll know more of the next kind of couple of weeks here and as we come around to Q1 well.
Give your updated information, but we can already see the tick back up into the bits of higher 50 of Clover House.
Great.
And as far as 10, 10 Pacific I know of.
In your opening commentary you said that you thought it would take about two years.
Is that two years from when you first began that projects that we'll see that completed at some point in 2022 or is that is that two years from today just given that the.
At the.
Optically appear to have slowed down a bit from a spending on that project.
I think it's more like it's hard for us.
Predict precisely, but the area of the side of conservatism is probably two years from today.
Got it and it looks like you didn't take a whole lot of bad debt expense here in the fourth quarter just looking at your cash.
K versus prior Qs, Mike do you feel like that's been largely washed out of Tennessee as we sit here in the first quarter.
I think that again, we can go into more detail offline. If you like but we actually did take a decent amount of bad debt expense in the fourth quarter. It was roughly a million dollars of bad debt in Q4 versus Q3 of mid six hundreds of 600000. So again, we continue to analyze it we can sort of talk offline if you'd like about the calculation but.
Where we're seeing strong rent collections as we said we're still in the mid Ninety's, but just you know examining certain leases and whatnot.
Yes, we did take a $1 million of in the fourth quarter and we expect that to.
The start to creep down here as you know stimulus payments come through in the economy continues to rebound. So hopefully here, we're roughly at a peak level of small hopefully start to tick back down.
Okay. Thanks, that's it for me.
Thank you.
Thank you ladies and gentlemen, this there were any other questions. Please press star one on your phone at this time.
And there were no other questions from the queue at this time.
Thank you for joining us today, we look forward to speaking with you again soon stay safe.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Bye.